Asymmetric information consolidation and price discovery: Inferring bad news from insider sales

Due to the paucity of sources of negative firm‐specific information, US capital markets have more difficulty identifying and incorporating bad news into stock prices than they do good news. Even though insider selling is a potentially important proxy for undisclosed bad news, researchers have difficulty ex ante identifying information‐based sales due to an inability to separate liquidity‐motivated from information‐based insider trades. We hypothesize that when insiders in multiple firms sell shares of one firm in which they are insiders and at the same time buy shares of other insider portfolio firms, the sale is more likely to be information‐based, since the proceeds are reinvested. Conversely, when an insider sells one firm without purchasing others or sells multiple insider firms the sale is likely liquidity‐motivated. We find that insider sales identified as information‐based using this algorithm are followed by significant negative abnormal returns. Information‐based sales are also more likely to be associated with delistings, earnings declines and earnings restatements. Analysts are also more likely to revise their earnings forecasts downwards for these firms. It is thus possible to ex ante identify insider sales with information content. Our results will be of interest to investors and also to regulators designing insider trading rules.     

Integrating local ecological services into intergovernmental fiscal transfers: The case of the ecological ICMS in Brazil

Local conservation efforts are often related to benefits at higher governmental levels. On the one hand, these efforts are strongly connected to local land-use decisions. On the other hand, activities such as sustainable water management or biodiversity conservation are associated with regional, national or even global public goods. Therefore, spatial externalities or spillovers exist, which—if not adequately compensated for—lead to an underprovision of the public goods and services concerned. This article investigates intergovernmental fiscal transfers as an innovative instrument for compensating local jurisdictions for the ecological goods and services they provide across local boundaries. From a public finance perspective, fiscal transfers are a suitable instrument for internalising spatial externalities. However, most federal states use this instrument predominantly for social and economic public sector functions rather than for ecological ones. This article investigates the case of the ecological “ICMS” that was first introduced by a few states in Brazil during the 1990s. Part of the revenue from this value-added tax is redistributed to the local level on the basis of ecological indicators. In this way, the state level uses fiscal transfers to compensate municipalities for the existence of protected areas and other ecological services provided within their territories. The Brazilian experience illustrates that such fiscal transfers can represent both a compensation for land-use restrictions and an incentive to value and engage in more conservation activities at the local level.     

Partial Horizontal Inequity Orderings: A Non‐parametric Approach*

We provide a partial ordering view of horizontal inequity (HI), based on the Lorenz criterion, associated with different post‐tax income distributions and a (bistochastic) non‐parametric estimated benchmark distribution. As a consequence, several measures consistent with the Lorenz criterion can be rationalized. In addition, we establish the so‐called HI transfer principle, which imposes a normative minimum requirement that any HI measure must satisfy. Our proposed HI ordering is consistent with this principle. Moreover, we adopt a cardinal view to decompose the total effect of a tax system into a welfare gain caused by HI‐free income redistribution and a welfare loss caused by HI, without any additive decomposable restriction on the indices. Hence, more robust tests can be applied. Other decompositions in the literature are seen as particular cases.     

Comparison of Hypothesis Testing and Bayesian Model Selection

The main goal of both Bayesian model selection and classical hypotheses testing is to make inferences with respect to the state of affairs in a population of interest. The main differences between both approaches are the explicit use of prior information by Bayesians, and the explicit use of null distributions by the classicists. Formalization of prior information in prior distributions is often difficult. In this paper two practical approaches (encompassing priors and training data) to specify prior distributions will be presented. The computation of null distributions is relatively easy. However, as will be illustrated, a straightforward interpretation of the resulting p-values is not always easy. Bayesian model selection can be used to compute posterior probabilities for each of a number of competing models. This provides an alternative for the currently prevalent testing of hypotheses using p-values. Both approaches will be compared and illustrated using case studies. Each case study fits in the framework of the normal linear model, that is, analysis of variance and multiple regression.     

The Influence of Environmental Pressures, Diversification Strategy, and Union/Nonunion Setting on Employee Participation

This study tests the hypotheses that environment, diversification strategy, and union/nonunion setting affect the number and variety of employee participation programs. A survey of large U.S. manufacturing firms measured the implementation of employee participation programs. Regression results suggest that environmental pressures exert a direct effect on participation in union settings. However, in nonunion settings, environment and diversification strategy both correlated directly with participation. These results suggest that unions could potentially affect participation program implementation.     

The many shades of ‘openness’: an application of item response theory to open innovation research

This study addresses one of the most basic research questions investigated in the Open Innovation (OI) literature: how open are firms? This question has remained partially unanswered given the challenges encountered by empirical research in assessing the relevance of specific OI practices within the OI model, as well as the types of activities perceived by managers as OI benefits or concerns. To provide an answer to this question, we suggest a framework using Item Response Theory to improve over current measures of firms' openness and test it on a sample of 383 technology‐based SMEs. Our theoretical model conceives openness as an instance of how firms make decisions regarding the adoption of different OI practices based on their evaluation of OI benefits and concerns. Focusing on the relationship between firm‐level differences in terms of openness and the types of OI practices adopted by these firms, we show that significantly different levels of ‘OI maturity’ are required to broaden the scope of external partnerships and to shift from non‐pecuniary OI modes (relation‐based approaches) toward pecuniary (transaction‐based) practices. Our results have relevant implications for the OI literature and provide new managerial insight into OI adoption.     

Difference‐in‐differences when the treatment status is observed in only one period

This paper considers the difference‐in‐differences (DID) method when the data come from repeated cross‐sections and the treatment status is observed either before or after the implementation of a program. We propose a new method that point‐identifies the average treatment effect on the treated (ATT) via a DID method when there is at least one proxy variable for the latent treatment. Key assumptions are the stationarity of the propensity score conditional on the proxy and an exclusion restriction that the proxy must satisfy with respect to the change in average outcomes over time conditional on the true treatment status. We propose a generalized method of moments estimator for the ATT and we show that the associated overidentification test can be used to test our key assumptions. The method is used to evaluate JUNTOS, a Peruvian conditional cash transfer program. We find that the program significantly increased the demand for health inputs among children and women of reproductive age.     

Vicarious warfare and dynamic efficiency of companies in the aerospace and defence industry

This study explores the economic performance that vicarious warfare can bring for the aerospace and defence industry. First, this study measures the performance of 22 companies using a nonradial dynamic data envelopment analysis model from 2011 to 2017. Second, this study evaluates whether vicarious warfare can influence the performance. The efficiency analysis suggests rooms for improvements meanwhile, the projection analysis suggests that market value should be significantly increased, and the number of employees should be reduced significantly. The regression analysis suggests that the number of times a country takes a side in wars would positively affect the efficiency of companies.